If you have been following our recent podcast episodes, we have gone through all the things you need to know to be a confident investor.
We encourage a low-risk, high reward strategy. Not gambling with your money but making solid, well-researched decisions for your investment future.
You’re probably in that stage where you’re ready to dive in. You’ve done the research, created shortlists, read the books and podcasts.
Now is the time to make your first investment, right? This episode is all about what you need to know before you press that “buy” button and how to know if you are really ready.
How Do You Know You Are Ready To Start Investing?
1. You just know
As cliche as it sounds, there comes a point where you know you are ready to take the next step. Symptoms include:
- Watching or reading market activity every day.
- Subscribing to multiples podcasts and blogs on the subject.
- Living and breathing the company you have shortlisted.
When you feel this energized at the thought of making a purchase, you are emotionally ready to invest.
2. You have identified 1 company that follows the four principles of value investing.
Identifying a company that you’re excited to invest in is a huge accomplishment. This company should align with all four of the core principles of value investing which are:
- Circle of Competence
Is the company you have chosen in an industry you live and breathe? Maybe you have prior knowledge in the field or just a keen interest. Remember that this is a lifelong relationship. Having an understanding of the industry sets you up for success.
- The “Economic Moat”
Does the company have a unique selling point that makes them special in the market? This quality has to be capable of growth and longevity for the investment to be worth making.
Do you trust the management of the company to grow the company? Are they capable and honest individuals that will nurture your investment?
What is the value of the company and how much are you willing to invest? We dive deep into how to determine the right price in this episode
Checklist: Before You Buy Stocks
- Check your emotions
Why are you investing? Are you excited about this company and want to be a part of its growth? Great! Go to the next step.
If you’re honest with yourself and feel a sense of FOMO or impatience, you aren’t ready to buy yet. Don’t make the mistake of rushing yourself into an investment for the wrong reasons.
- Check your biases
Confirmation bias (or any of the other slippery cognitive biases for that matter) will trip you up every time. The best way to combat this is to play devil’s advocate.
You likely have a shortlist of reasons to invest in your chosen company. Now flip it around. What are all the reasons you shouldn’t invest in the company? Challenge yourself to pick the company apart.
You don’t have to do this alone. A simple Google search of “why not to invest in [insert company name]” will yield some results that will probably break your heart a little.
Review how convincing these arguments are. If you can rebut them easily, you’re making the right decision.
- Identify the best brokerage platform for you
You want a brokerage platform that works best for you. We don’t tend to recommend platforms here as there are so many, and the choice is ultimately quite personal.
The two fundamental features a good brokerage platform should have are:
1. They don’t charge fees for buying or selling stocks. This is outdated so read the fine print carefully.
2. They have an easy-to-use, intuitive platform that you understand.
- Buy “practice shares”
The concept of “practice shares” comes from a book called “Invested” by Phil and Danielle Town.
Essentially, it means buying a couple of shares in a company (any company) as a practice round before you make your big purchase.
Think of it like “simulation” in medicine.
Not quite experimenting on real patients but still getting a valuable learning experience. Here is how to do it:
1. Create an account on your chosen platform and choose a company to invest in.
2. Decide how much to invest. It should be enough to feel emotionally attached to it but not so much that you are afraid to lose it.
3. Follow the process on the platform to submit an order for when the market opens.
4. Review how you feel at each stage of the process. Do you feel nervous? Buyer’s remorse? Excitement? These are all normal and expected.
5. Do a couple of practice rounds until you are comfortable investing a larger sum of money.
Once you have gone through all of these steps, you are fully prepared to make a meaningful investment in the company of your choice!
Looking for more information about the stock market, value investing, and more? Please check out the Stocks4Docs Podcast.